Mesaieed Petrochemical Holding Company Q.P.S.C.'s (DSM:MPHC) Shares May Have Run Too Fast Too Soon

When close to half the companies in Qatar have price-to-earnings ratios (or "P/E's") below 13x, you may consider Mesaieed Petrochemical Holding Company Q.P.S.C. (DSM:MPHC) as a stock to avoid entirely with its 21.1x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

For example, consider that Mesaieed Petrochemical Holding Company Q.P.S.C's financial performance has been poor lately as its earnings have been in decline. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. If not, then existing shareholders may be quite nervous about the viability of the share price.

View our latest analysis for Mesaieed Petrochemical Holding Company Q.P.S.C

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Mesaieed Petrochemical Holding Company Q.P.S.C will help you shine a light on its historical performance.

Does Growth Match The High P/E?

In order to justify its P/E ratio, Mesaieed Petrochemical Holding Company Q.P.S.C would need to produce outstanding growth well in excess of the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 37%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 18% overall rise in EPS. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 8.0% shows it's noticeably less attractive on an annualised basis.

With this information, we find it concerning that Mesaieed Petrochemical Holding Company Q.P.S.C is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

What We Can Learn From Mesaieed Petrochemical Holding Company Q.P.S.C's P/E?

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Mesaieed Petrochemical Holding Company Q.P.S.C revealed its three-year earnings trends aren't impacting its high P/E anywhere near as much as we would have predicted, given they look worse than current market expectations. Right now we are increasingly uncomfortable with the high P/E as this earnings performance isn't likely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Mesaieed Petrochemical Holding Company Q.P.S.C you should know about.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.